Saturday, February 20, 2010

Much Ado About Nothing

I usually don't start an article about the financial markets with a quote from Shakespeare, but I will this week. It's from Macbeth's soliloquy in Act 5, Scene 5:

"It is a tale told by an idiot, full of sound and fury, signifying nothing."

This quote pretty much sums up my thoughts about the news late Thursday that the Federal Reserve was raising their 'discount rate' by a quarter-percent to 0.75 per cent and the breathless coverage by the financial media.

The Federal Reserve's 'discount rate' is the rate that the Fed charges banks on emergency loans. In other words, it is meaningless.

The key rate to keep an eye on is the 'federal funds rate'. This rate, also set by the Federal Reserve, is the rate from which both consumer and business loans are based.

So why did the Federal Reserve even bother raising the discount rate?

Because the Fed and its chairman, Ben Bernake, are trying to fool people. They want people to think that they will soon stop their policy of trillion-dollar giveways to Wall Street and actually protect the value of the US dollar.

The Fed wants people to believe that they will quit printing money and perhaps even give savers a break and raise interest rates.

I doubt very much that will happen. Look at the Fed's recent history.....

In the last year, the Federal Reserve bought roughly a trillion and half dollars worth of Treasury securities, financing almost ALL of the Federal deficit!

The Fed also bought a trillion dollars worth of mortgage-backed securities. And all of this was paid with "phony" dollars that the Federal Reserve printed out of thin air.

Is it any wonder that the US dollar continues on its downward slope?

Or that the Chinese are no longer the biggest holder of US Treasuries? In December, they sold over $34 billion worth of Treasury securities. They can't get of the US dollar fast enough to suit them.

The Chinese and the rest of the globe can see that every time the US economy gets into trouble, the Federal Reserve's solution under both Greenspan and Bernanke is to print up a ton of money and give it to Wall Street.

That "solution" solves serves only to enrich a select few.

So Ben Bernanke isn't fooling anyone with his little 1/4% hike in a meaningless rate...except maybe the financial media.....

And anyone who buys the snake oil they're selling about how "prudent" the Fed is being, what a "smart" move it is, etc.

1 comment:

  1. The Federal Reserve is full of incompetent fools who have no idea about anything. Bernanke tells the Congress that they sent billions of dollars to foreign banks and companies and nobody says anything.

    I'm not surprised though that they can get away with it. When you have guys like this in Washington then it's no real surprise the Fed can get away with everything they do